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It takes a lot of pieces to make a decent quilt. Piecing each tiny scrap of fabric takes patience and skill, but the result can be a pretty – and functionary – item.

The same is true for distributed energy resources, a catch-all term for rooftop solar, electric vehicles or smaller generation sources attached to the distribution grid. How do you transform small, power generating resources scattered seemingly without rhyme or reason into functioning grid resources?

“When you think about DER aggregation, and actually pulling it off, aside from policy and jurisdictional issues and cost recovery issues, and those priority dispatch issues, you got to make this work and connect...there’s a fundamental question on what kind of grid architecture we’re going to have,” said Tanuj Deora, executive vice president for the Smart Electric Power Alliance, a research group.

Consumers’ appetite for rooftop solar, electric vehicles and, soon, residential storage, shows no sign of slowing down. But how to harness those scattered resources poses an existential problem to utilities and an aging grid.

Aggregating DERs is still a nascent market existing mainly on paper. Demand response programs have historically compensated large power users for load reduction. But those programs typically do not contain the flexibility required by grid operators, which is something DERs can potentially deliver.

Efforts by the Department of Energy during the Obama administration, and New York’s Reforming the Energy Vision have sought to change that by providing financial support and regulatory incentives for utilities to invest in DERs. The Federal Energy Regulatory Commission is also taking a look into DER aggregation within a rulemaking to define energy storage.

Power sector experts interviewed by Utility Dive identified emerging trends within this niche market. Many cautioned against reading too much into the wildly differing state and federal initiatives, but a nimble company and regulators can find opportunities in partnerships with utilities and ongoing state efforts to modernize grid systems.

“There is this opportunity that needs to be addressed in a systematic way,” Deora said.

What are DERs and how do you aggregate them?

In power sector terms, DERs are “ [technologies] connected to distribution voltages less than 69 Kv and anything connected behind the customer’s meter,” according to Jason McGovern, a seniorenergy strategist with PJM Interconnection.

Distributed generation can be defined as miniscule power sources creating power by a customer, instead of at the command of a centralized operator. While some small gas turbines and diesel generation sources count as DERs, the most common definition references behind-the-meter solar, BTM solar paired with storage and even small-scale wind turbines.

DER penetration is very small, but utilities, states and wholesale markets are looking ahead to developing guidelines to harness these scattered resources into collective power sources.

There are three value propositions to DERs, says Deora: one - easing the onslaught of current and future renewable energy coming online; two - customer resiliency and reliability benefits; and three - DERs, if deployed at scale, can improve transmission and operability efficiency.

Utilities are increasingly recognizing these values, but are still navigating the wide range of technologies best suited to specific needs. These can include sophisticated home energy management platforms to technologies such as smart thermostats and water heaters.

“In general what utilities are doing with DERs in this space is pretty simple,” said Seth Frader-Thompson, president of EnergyHub. “ They are still figuring out themselves that water heaters can be used to shift loads around — they are still verifying smart inverters can supply voltage support — the software is a little ahead of what utilities want to do with them and a little ahead of what they do themselves.”

Tech Trends

As DERs proliferate, utilities and up-and-coming companies are eyeing new and existing technologies to harness them to meet demand. Microgrids, virtual power plants and even pulling together smart thermostats are possibilities.

“The hot topics lately have been non-wire alternatives,” said Doug Staker from Demand Energy. Coming out of New York, Doug said his company was in talks with utility Consolidated Edison to build a microgrid as one potential platform to harness distributed energy resources.

On the other hand, virtual power plants (VPP) — otherwise known as a sort of cloud that aggregates widespread DER installations — give utilities the flexibility to provide ancillary services and generate revenue in wholesale markets.

A prime example is ConEd’s VPP as part of New York’s REV. ConEd aims to aggregate and deploy customer-sited power resources for wholesale market functions when not in use by the primary owners.

California is also home to multiple efforts to leverage technology in order to aggregate DERs. CAISO developed rules for DER providers (DERP) to ease aggregating different types of resources in the ISO markets, such as storage sending energy from behind-the-meter to the wholesale market. But these complex rules have yet to be put into practice.

“[California] has multiple virtual power plants in the 10-50 MW range,” said EnergyHub’s Frader-Thompson. The state grid operator (CAISO) is currently undergoing efforts to incorporate DER aggregation in its wholesale market.

However, industry stakeholders noted the technology trends were moving faster than regulatory and policy discussions around DER aggregation.

What policies are needed to make room for DER aggregation?

“I think a lot of practical solutions are hitting the market right now. We’ve been promised this type of integration of DERs at the grid edge for a long time. We’re starting to see a combination of market innovation and software and policies that are beginning to align and that’s encouraging,” said Matthew McCaffree director of regulatory strategy at demand-side management company Itron.

But policymaking has not kept up with the rapid technological advances, industry officials told Utility Dive. Utilities are hesitant to readily invest in these resources, says a 2016 GTM Research survey, for a wide variety of reasons.

Some utilities don’t have DER aggregation on their radar. The California utilities and state grid operator, on the other hand, already grapple with higher DER penetrations but are trying to navigate regulatory and technical hurdles to harness them together into flexible resources and bid them into the state's wholesale market.

“There are a lot of things that have to fall into place for us to pull it off,” including market participation, policy and technical issues, said SEPA’s Deora. “These are all interrelated and you can’t solve them one at a time,” but instead, address each issue in parallel.

One problem PJM and California ISO are addressing is how DERs participate in wholesale power markets.

“We would like the participation model to be as slender as you can,” PJM's McGovern said. “You need everyone to have the same rules if you can.”

SEPA’s Deora noted similar obstacles facing the technical side of DER aggregation, particularly in crafting standard communication protocols among connected devices on home energy management platforms.

As DERs proliferate, “it can be a drag if we don’t have agreement across the industry on what the standards are going to be, what protocols are going to be — I think there’s a basket of technical issues that will need to be [addressed].”

On the policy side, market participation and data collection are key issues.

“We’re going to have to work through policy issues around data. We’re going to work around policy how the cost recovery is going to work and who’s going to get allocated and what kind of oversight we’re going to have in the jurisdictional efforts,” Deora added.

Beyond policy and technical issues

At the most basic level, regulators and commissioners need to take a wide-eyed view of the trends shaping DER aggregation and how utilities can best leverage them to meet grid services.

“Are we going to have a central grid system?... Are we going to have a transactive system? Or are we going to have a hybrid system?” Deora said. “I think a more holistic thinking [on DER integration and management] is necessary."

Correction: A previous version of this article incorrectly called Smart Electric Power Alliance, "Smart Electric Power Association."